Posts Tagged ‘Dollar’

In 2009 we already discussed the possibility of a new Bretton Woods on this site. Since then not much has happened, but if governments don’t act, people will.
Please watch this video, it is part of a documentary broadcast by the Dutch network VPRO. Back to gold and silver coins, so simple. The gold Dinar and silver Dirham are accepted widely in Indonesia. Most governments would not allow such a system to develop. But in Indonesia the government allows it (for the time being). That is because this monetary system is according to Islamic law, and the fiat currency system most counties use is not. The best part of this documentary is that “people on the street” tell you what some of the best economist of the world have already told you. How paper money is just a means for governments (a.k.a. “the rich”) to take your belongings.
“The creation of dirhams (silver) and dinars (gold) is one of the blessings of Allah.
Allah has created dirhams and dinars as judges and mediators between all commodities so all objects of wealth are measured through them.” Imam al-Ghazali

Sorry I haven’t posted anything for such a long time, I am very glad I am blogging again! After almost six months yet again another all-time high has been reached in the price of gold. Last week there was is slight pull-back, but today we see bargain hunting again. I expect the gold price to remain in the $1160 – $1250 range for the coming months. This is not what happens in ‘normal’ years, than there always is a drop of the gold price in the summertime, so not this year! The biggest development in the last moths has been the fact that the gold price now moves independently from the dollar index. I visit www.kitco.com on a daily basis. The Kitco Gold Index gives the investor a better view of the price development. We probably will have to wait till September before we will see a steady price of about $ 1300 However, there may also be upward as well as downward spikes these coming months. We still advise to buy gold whenever is falls below $1180 I myself don’t do trackers or Forex trading, but this volatile market is sure making them interesting tools for the more aggressive trader.

Some people say we are in a bubble

We’re not! When your taxi driver or shoe polisher advises you to buy gold, than we are in a bubble. You do see the financial media have picked up the marked trend, and are following it closely. This merely was the first step towards bubble forming. This will end in a bubble, that’s for sure as well. But with ever diminishing gold and silver deposits on this earth make sure a firm bottom for prices has been formed now. When you correct the 1980 prices of gold and silver for inflation, the all time gold price would be around $6000 and that of silver about $120 when we reach these ranges, and we will, we can talk about a bubble again.

What about the silver price?

The price explosion I discussed in the previous post has not happened, yet. For this event we probably have to wait for September as well. With rising gold prices the material becomes more and more ‘out of reach’ for some small investors and the general public. This will result is a correction of the gold/silver ration to its historical value of about 15. If we apply this ratio to today’s gold price of $1200 silver should cost $80 per ounce. One reason for prices not to have exploded yet is the price manipulation of this market. You can read some very interesting facts about this manipulation via this link. For information about manipulation of the gold price please visit www.gata.org

The European dept crisis will continue at least for two years. The so much discussed PIIGS countries will contribute to a further decline of the Euro. Now about them PIIGS, this surely must be the best marketing hoax since the Blair Witch Project. The people who made up this term confidently left out Great Britain and the United States. Those two countries have issues with their money base and depts. far greater than the PIGGS counties. Therefore physical gold and silver will give the best ‘insurance’ for the longer term. We managed to pick up some more shares of Silver Wheaton (SLW) at a price of $14.95 We have put in another buy order at a price of $17.50 We will monitor the price of this stock closely. Established in 2004, Silver Wheaton has quickly positioned itself as the largest metals streaming company in the world. The company currently has thirteen silver purchase agreements and two precious metals agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions.

Forecast 2010 production, based upon the company’s current agreements, is 22.2 million ounces of silver and 20,000 ounces of gold, for total production of 23.5 million silver equivalent ounces. By 2013, annual production is anticipated to increase significantly to approximately 38 million ounces of silver and 59,000 ounces of gold, for total production of over 40 million silver equivalent ounces. No ongoing capital expenditures are required to generate this growth and Silver Wheaton does not hedge its silver production.

Silver Wheaton’s industry-leading growth profile is driven by a portfolio of world-class assets, including silver streams on Goldcorp’s Peñasquito mine in Mexico and Barrick’s Pascua-Lama project straddling the border of Chile and Argentina. The company’s unique business model creates significant shareholder value by providing considerable leverage to increases in the silver price while reducing the downside risks faced by traditional mining companies. Silver Wheaton has an experienced management team with a strong track record of success and is well positioned for further growth.

Today gold rose to a new all time high (again). The up-trend in gold is going much faster than we expected, so actually we were wrong. Though, you won’t hear us complaining of course. The brilliant price of $ 1122 was reached shortly. The temporary downturn we predicted did happen, just not as far as we expected, from $ 1050 in went down to $ 1030. Why did gold go up so far? One side is the downturn the dollar has taken. So your gold only appears to have gone up for a part. The second contribution we have to thank the central bank of India for. They bought the gold the IMF was selling, we wrote about this in a previous post. So after 50 years of gold selling by central banks we now see them buying again (in an other part of the world though). Both these factors had the effect that investors started buying again, resulting in an even bigger gain. We expect the gold price to remain stable for about 1 or 2 months or decline slightly before yet another rise. When we look at the technical chart of gold, and the expectation that both banks and investors will keep buying, we set the new price target for January 2010 at $ 1150.

What about silver? There we did not see such a large gain. This is the direct result of the industrial demand for silver. For a rising silver price we have to count on investors, they still seem to be focused on gold at this moment however. Once they finally realise that silver is undervalued big time, we might see the price of silver explode. We expect that the price will be around the $ 22 level at the end of this year. The big correction in the silver price, that we keep waiting on, should result in a real price explosion . We predict this will take place in beginning of next year. A price of $ 50 or even $ 60 is not unthinkable. Read our previous post on silver to learn why this will happen.

Conclusion, for both gold and silver we remain bullish. The last chance to buy at a reasonable price is now! The biggest “discount” however, is to be found in silver.

Today the G-20 summit in Pittsburgh will commence. Many world leaders are now convinced that the dollar should be replaced by a new monetary standard, we might be on the brink of a new Bretton Woods. In November 2008 Gordon Brown and Nicolas Sarkozy were the first to publicly state that the current system is out-of-date and that a new world monetary standard is needed. Gordon Brown stated that a new Bretton Woods Conference should take place. Article in the Times. The IMF has posted an interesting article on its website, preparing the world for a new conference. Since many renowned economist are calling for a new Bretton Woods like conference we can only hope that today’s world leaders are brave enough to show leadership and take action.

But how should this new system look like?

For many reasons gold on its own is not likely to return to its historical importance. It is most likely that a new currency is created where it’s value is measured by a basket of the most important currency’s, oil, gold and other commodities. This idea is not that new, in fact John Maynard Keynes called for it in the Bretton Woods conference. The name of the proposed currency was the Bancor. The U.S. government was so powerfull that it could push forward their proposal of fixing the gold price to the US dollar, so this plan eventually won. This system worked till 1971, after that the costs of the Vietnam War became so great that the Fed had to print so much money that the ratio could not longer be sustained. In the meanwhile European countries like France started demanding gold instead of the dollar, and shiploads were being pulled from Ford Knox. The US government was forced to let the fixed gold price go, and also stop the ban on gold ownership for US citizens. From 1972 till 1980 the price of gold exploded. If we correct the gold price of 1980 with inflation the price was $ 2000 an ounce in today’s dollars.

We will follow the G-20 summit with great interest and hope that the leaders will show leadership and vision. Will they finally decide that a new Bretton Woods should take place, or are they even more decisive and let Pittsburgh become the new Bretton Woods.